COVID-related rent issues may continue into 2021
The COVID-19 pandemic has negatively impacted a lot of businesses financially, which has led to them missing rent payments during the last few months. It now looks like commercial real estate owners might have trouble collecting rent through at least the end of 2020, according to GlobeSt.com. Tenants may struggle to pay rent going into next year as well if a second wave of the pandemic hits the U.S.
“Considering the impact that we have experienced in the economy so far, it is expected that most acute and evident rent issues will affect most business for the remainder of the year,” BPM LLP attorney Mark Leverette told GlobeSt.com. “If there is a second wave of the virus, including another quarantine lockdown, the problem could extent through 2021. The ‘Wildcard’ is the effect of an economic downturn, and that will be an industry-by-industry analysis suited for a well-versed economist.”
Tenants’ ability to make their rent payments relies heavily on customers’ willingness to shop, GlobeSt.com reports. If they resume their old shopping habits as stores and businesses reopen, tenants should be able to get back on track with their rent payments in a short amount of time.
“Much of the ability to rebound will be micro economy based and related to the returning foot traffic,” Leverette told GlobeSt.com. “All property types and the related tenant business forecasts will require insightful financial analysis and an overlay of an economic forecast.”
Rent relief initiatives currently favor tenants over landlords
Meanwhile, most government rent relief efforts have favored residential renters more than CRE renters. In terms of eviction issues, tenants are currently receiving more tenant protections than landlords.
“Most of these programs have automatic provisions to allow for payment deferrals from tenants; however, compliance documentation needs to be provided and/or tracked,” Leverette said. Programs are different based on your specific jurisdiction.”
Any CRE owner that wants to go to court to collect back rent should be warned that the process won’t move as quickly as it usually does. Connected Real Estate Magazine recently reported that due to the COVID-19 pandemic, federal, state and local orders banned evictions and a lot of courts were closed during the state of emergency. Eviction bans are being lifted and courts are opening now, but landlords probably still won’t be able to evict their non-paying tenants right away. Court cases could be delayed for months because there are currently so many lease defaults to review.
When cases begin, tenants are likely to see if there’s any language in their lease agreement that might excuse payments because of an unforeseen circumstance like the pandemic. Meanwhile, landlords will argue that courts should enforce lease agreements as they’re written because they have lenders to pay, too. In the meantime, eviction moratoriums are still protecting many commercial tenants. However, the eviction bans put financial stress on landlords—as well as increase tenants’ rent bill total.
Legal experts have encouraged landlords to negotiate terms with their tenants—either defer or forgive payments if possible. As Dykema real estate attorneys Brian Forbes, Michael Vogt and Steven Mroczkowski recently explained, negotiating could be a win-win for landlords and tenants. Not evicting tenants would allow landlords to avoid having vacancies, while tenants would get some much-needed financial relief.
“It should be noted that landlords are always incentivized to sit at the table to renegotiate the best outcome for the parties, as both parties stand to lose if the tenant moves out,” Leverette told GlobeSt.com.